Lawmaker use of stipends disputed

By Gary Scharrer - Express-News :
August 21, 2010

AUSTIN — Most San Antonio and Houston state legislators pay for lodging and related living expenses here out of their campaign accounts and then pocket the $168 per diem from taxpayers — a practice an ethics watchdog called “de facto fraud.”

Lawmakers say their conduct is both ethical and legal. But the handling of their per diem, totaling at least $23,520 each in legislative session years, could put them in a gray area with the IRS.

Dave Palmer filed complaints this week with the Travis County district attorney and the Texas Ethics Commission against lawmakers who pay lodging and utility expenses with campaign money instead of using the per diem they get every day they're in the Capitol on state business.

“When outside sources pay 100 percent of a legislator's lodging expenses, he or she has no lawful right to pocket state reimbursements paid to defray those costs, right?” Palmer asked in his complaint to the prosecutor. “It would be difficult to imagine that this conduct does not constitute de facto fraud.”

His complaint covers 34 of 46 legislators from San Antonio and Houston. Palmer said his complaint soon will expand to include about two dozen Dallas and Fort Worth lawmakers. He's also looking at the campaign finance records of other lawmakers scattered across Texas.

Palmer is a Californian and disabled Army veteran who has spent much of the past 18 years examining financial records of public officials in Texas, California, Ohio, New Jersey, New York and Louisiana and several other states.

“The Election Code specifically authorizes legislators to pay for Austin lodging and some other expenses from legislators' campaign accounts, so that is what my campaign does,” Van de Putte said. “Per diem doesn't cover the extent of the many expenses associated with being in Austin while working on legislative business. It is not, therefore, taxable income, nor do I report it as such.”

Van de Putte and other lawmakers say they don't favor raising the per diem, but also note they have to use campaign money or personal funds to finance living costs exceeding their per diem — which amounts to more than $4,000 a month during legislative sessions.

There are no state rules on the proper use of per diem pay, and lawmakers are allowed to use political funds to pay for business-related expenses, according to the Texas Ethics Commission.

“It's legal and ethical to do so,” Rep. Jose Menendez, D-San Antonio, said about using campaign funds to pay for lodging and related expenses in Austin.

Menendez said he didn't use campaign money during his first eight years in the Legislature as he made daily commutes to the Capitol – even though the state reimbursement is limited to one trip per week while lawmakers are in session.

His routine changed after his children were born, and he wanted to spend more time with them — in his Austin apartment. He paid about $1,700 a month for apartment living during the 2009 legislative session.

“Austin is a very expensive city,” Menendez said. “It costs more money than what we get in per diem. We have greater expenses than just our rent and utilities.”

Robinson, the UT business professor, said per diem is designed to cover traveling costs when making an overnight trip.

“The law enumerates what those expenses can be — meals and lodging and a number of things under miscellaneous. There's a limited amount of expenses that can be reimbursed under the tax law for travel,” he said. “All the per diem does is release you from substantiating all those little expenses. It doesn't open it up to reimbursing things that would not otherwise be deductible.”

Lillian Mills, also a federal tax expert and accounting professor in the McCombs School of Business at the University of Texas at Austin, said per diem pay generally is not taxable.

“But you can't then use the same amount of expense to avoid paying tax on some other reimbursement like a draw-out of that campaign fund,” she said.

Texas lawmakers do not have to provide invoices or documentation for their expenses or file for the per diem checks when they're in session. The payments are made automatically, according to leaders in the House and Senate business offices.

When not in session, legislators get up to $2,016 per month, or a maximum of 12 days, in per diem pay to cover expenses. They don't have to be itemized.